Get the kids interested early!

My interest and obsession with stocks started in 1987 in marketing class. Mr. Adams was a shrewd business man but also a great teacher. He encouraged us to do the homework, do the research and he started me on my life long interest in the stock market.

I remember Black Monday (Oct 19th, 1987) when the Dow Jones Industrial Average cratered 22% . Even though I was only a teen, I remember the cover of every paper showing traders pulling their hair out, screaming and talking on multiple telephones.

In those days, you needed traders on the floor, a good knowledge of hand signals and a runner that could go the distance. Books like “Liar’s Poker” and movies like “Wall Street” and “Boiler Room” really bring back that excitement and the “irrational exuberance.”.

I won the Stock Market Challenge, sponsored by the Securities and Exchange Commission, in 1988.

I had researched an interesting guy: Henry Kravis. Mr. Kravis was was all over magazines and there were articles about him even in the local paper. Mr. Kravis was head of the Private Equity Firm of KKR (Kohlberg, Kravis and Roberts). Without the internet, other than that IBM XT Mr. Adams had in his office, there was no place to see the ticker or find out the real news, but I had read an article in the three day old IBD that told of a rumor that KKR was interested in RJR Nabisco, the tobacco and food conglomerate.

The next day, Shearson, Lehman, Bros (at this time Shearson, Lehman, Hutton…(of the fame: “when E.F. Hutton Speaks, people listen.”)) had issued a tender offer to take RJR Nabisco private for $75 a share.

I had 10 Large on paper to trade with, but since the margin rules were a bit lax back then, even for the game players, I leveraged it into the 100K that I needed. I was IN!

After I placed the trade, you had to buy even lots back then, KKR jumped in with a bid for $90 a share, allowing it to go forward without the approval of RJR management. The frenzy, as only Wall Street can muster, was on. I thought I knew what I was doing, a dangerous place to be.

Shearson Lehman Hutton and Salomon Brothers hit back with a bid of $112 and it ended up with the RJR Board of Directors actually settling in at $109 with KKR as the victor. The largest leveraged buyout in history at the time.

I had made a cool 30% after the ten weeks was over. Not a bad haul, even today.

The next year, I used that motivation and won the Commodity Challenge, sponsored by the Chicago Board of Trade. Using a drought, a couple of thousand bushels of soybeans, and a strike price that was easily hurdled…it sent me to the windy city and I traded in the pits at the CBOT…not even the president can do that!

The moral of the story is that these early games started me on a life-long interest in the market. Use whatever means to get your kids involved, the laws of compounded interest are on their side.

 

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